Wayne State University School of Medicine officials say the school can break even by 2019 as part of the turnaround effort that is already shrinking its losses.

To get there, the school says, it will need to lose as many as 50 unproductive scientist researchers and their salaries, increasing clinical service patient revenue, further reducing administrative and fringe benefit expenses, negotiating improved hospital partnership agreements and vendor contracts, and generating more research grants.

Several medical school executives interviewed last week by Crain's expressed optimism that the changes underway will result in positioning the nation's largest urban medical school, with 1,200 students, as once again a destination for aspiring doctors, clinicians and researchers after struggles with falling revenue from hospital deals, accreditation problems and a dropoff in recruitment of minority students.

Despite the $29 million loss posted in 2015 by the medical school and its 500-member University Physician Group, Dean Jack Sobel, M.D., and other officials said improvements at the medical school over the past year have boosted staff morale and created a renewed sense of enthusiasm for the school's mission.

Even Charles Parrish, president of the faculty union at Wayne State, said he believes the medical school is taking prudent steps toward financial stability. But he continues to express concerns that more than a dozen faculty members facing detenuring or other actions receive fair due-process hearings.

"I think they have gotten a handle of the managerial aspects of the medical school. The things that had to be reformed there have been," Parrish said. "I don't agree with all the consequences with the faculty. They have not paid much attention to the niceties when it comes to the tenure process."

Wayne State has improved its curriculum and other requirements to come into compliance with national accreditation standards and straightened out minority student recruitment, Parrish said. It also has made a number of technological and program improvements, including moving to an online application process for its students.

At the end of fiscal 2016, Sept. 30, Wayne State had cut its losses by $12 million to $17 million, officials said. Over the next three years, further cost reductions and revenue gains are expected to cut further losses to $11.6 million in 2017, down to a negative $5.5 million in 2018 with break-even projected for fiscal 2019. Since 2013, the medical school and UPG has lost $57.5 million, which has been covered by the university.

"We are eliminating positions, combining (jobs), reducing faculty, cutting fringe benefits and memberships (such as the Detroit Athletic Club) and restructuring administration" of the medical school and UPG, said Rob Kohrman, the medical school's vice dean for fiscal affairs.

By the end of the year, the medical school will have about 45 fewer employees and staff members, a decrease accomplished by a small number of layoffs at UPG, attrition and not filling vacant positions, Kohrman said.

As of 2015, total employees at the medical school and UPG were 3,285, including 985 at UPG and 2,300 at the medical school.

But the most difficult part of Wayne State's turnaround has been the evaluation process Sobel and staff have undertaken to assess the relative value of about 827 medical school faculty, clinicians and researchers.

"After an extensive investigation, we identified up to 65 unproductive or underproductive faculty" who weren't contributing enough financially to Wayne State, Sobel said. That number of targeted faculty has gone up and down over the past year, from a high of about 85, down to 42 over the summer, but after further review now stands at about 65.

"It is difficult to do (drop faculty), and I have mixed feelings about it," especially for younger faculty members who have families, he said.

But Sobel said many other medical schools are facing similar problems, and tough decisions need to be made to erase Wayne State's deficit that earlier this year amounted to a monthly burn rate of $1.5 million.

"No one is guaranteed continued funding their whole life," he said. "We allowed the ball to be dropped too low."

Underproductive research faculty are illustrated by this fact provided by Wayne State: Though the national average for tenured faculty with grants is about 40 percent, Wayne State's average recently hovered at about 14 percent.

Parrish said the main problem with Wayne State's approach is that it has failed for years to set clear expectations for faculty productivity.

"You can't tell a faculty member they are doing fine one year and the next year, because you are losing money, tell them you're not contributing and are fired," he said.

During the next three years, up to 40 faculty members — all basic scientists — have agreed to retire or will take buyouts, Sobel said. About 18 faculty members have so far agreed to retire during the next 12 months.

An additional 10 to 13 faculty members will go through a detenuring hearing process that could sever them from employment, he said. Sources said medical school officials wanted to fire more faculty, but that the union pushed for hearings. Other faculty will be asked to increase grant production.

"We sent out letters to about 13 or 14, asking them to improve (the number) of applications for research grants," Sobel said.

On a bright note, Sobel said, Wayne State's biomedical research grant approvals have increased by $11 million to $12 million over 2015's total of $117.7 million.

"We are at the highest level in a decade," he said, adding: "We have very talented individuals," many of whom have redoubled their efforts to increase research funding.

In 2010, the Wayne State medical school garnered $90.8 million in National Institutes of Health funding and $117.8 million in total funding, a 10 percent increase from 2009, officials said at the time. Overall, Wayne State's universitywide awards hit $188 million in 2015.

Last year, Wayne State also opened a 200,000-square-foot medical research facility, the Integrative Biosciences Center, at 6135 Woodward Ave. IBio, which is expected to help generate additional grants, revenue and economic impact for the university, has been dedicated to studying and eliminating Detroit's health disparities.

"We are going to announce some very exciting research initiatives in the next few weeks," said Sobel, adding that they will be in the translational research area that will involve the entire WSU research community, not just biomedical.

Another improvement for the medical school, effective Oct. 1 for fiscal 2017 if approved by the university's board of governors, is increasing the dean's tax to 5 percent from 2.9 percent. The dean's tax, accumulated from the medical school's 19 clinical departments based on professional fees collected, will be used to cover the office's administrative costs, salaries, recruiting, new projects and initiatives.

Previously, the departments paid the dean's office 8.7 percent — which generated about $10 million to $14 million in revenue — to support a variety of services. One-third went to the dean's office and two-thirds went into the Funds for Research and Medical Education (FRME), which essentially was a pass-through that went back to the departments for salaries, benefits, research and development costs.

Sobel said FRME will essentially be eliminated, allowing the departments to better manage their expenses. He said the increase was supported by the departments because they believe it will improve efficiencies and eventually allow the school to grow through recruiting and internal staff development.

"We hope the austerity (hiring freeze on new faculty) ends September 2017," said Sobel, noting that he believes Wayne State will begin to recruit additional physicians and researchers using the dean's tax revenue.

"The average recruitment package is about $630,000," which covers the first three years for a new clinician or researcher, Sobel said.

DMC negotiations

Wayne State officials continue to decline to comment on the recent 18-month contract agreement with Detroit Medical Center. Sources say the short-term contract essentially is revenue neutral, and could be a little less depending on production, but in any case it will not help add revenue to the medical school's coffers.

In 2015, Wayne State received about $51 million from DMC for teaching and clinical services functions, down from $68 million in 2009 and $87 million in the late 1990s.

Last year, Wayne State officials said declining payments from DMC were a contributing factor to the school's losses, although they acknowledged poor management and faculty underproduction was the primary reason for the deficit that had grown to $29 million.

David Hefner, vice president for health affairs of Wayne State, also said efforts to bring in three independent clinical departments into UPG have been put on hold while the medical school restructures operations. The departments are pediatrics, emergency medicine and radiology.

While Sobel declined to comment on the pediatrics department, sources told Crain's that pediatrics is reeling from the forced departure in August of Steven Lipshultz, M.D., as chairman of the department. Tej Mattoo, M.D., has been named acting chairman. Wayne officials said the change in leadership was necessary and critical to the department's future.

But in a recent meeting, the board of University Pediatricians reaffirmed Lipshultz as president of the independent medical group practice affiliated with DMC Children's Hospital of Michigan. Lipshultz also will continue as pediatrician-in-chief at Children's.

"We don't need the (three) departments (to join UPG) to do what we need to do," Hefner said. "There are other ways to accomplish our goals."

One way, said Hefner, is for Wayne State to form a clinically integrated network organization with UPG, the three independent departments and possibly other hospital partners.

"We are working on it," Hefner said. "We would be on the specialty side since we don't own hospitals."

A clinically integrated network is a connected set of hospitals, physicians and other provider organizations that are formed to contract with payers or employers. Network providers adopt common clinical practices, share electronic information to enhance care and streamline administrative processes.

At least four other clinically integrated networks exist in Michigan. They are Together Health Network, a partnership between Livonia-based Trinity Health and Warren-based Ascension Health Michigan; Beaumont Care Partners, which includes the eight hospitals of Southfield-based Beaumont Health and the 2,500 physicians part of United Physicians and Beaumont; and a network operated by DMC.

The largest CIN is Affirmant Health Partners, with 33 hospitals and more than 6,000 physicians. Participants include Detroit-based Henry Ford Health System and Sparrow Health System in Lansing.